Resources/Weekly Insights

Volume 14, Edition 38 | December 1 - December 8, 2025

Gold – Protecting with Risk

Doug Walters, CFA

Gold’s 60% surge this year highlights its unique role in our strategies: a volatile asset classified as “Protection” because of its diversification benefits and low correlation to equities.

Contributed by Doug Walters, David Lemire, Max Berkovich, Matthew Johnson

Gold has surged over 60% this year. It is often thought as a relatively “safe” store of value in times of uncertainty—“protection” for your portfolio, if you will. But the price of gold is quite volatile. So, it is anything but safe. Yet we see a place for it in a well-diversified portfolio… and you might be surprised how we have classified it within our evidence-based strategies.

The Protection Dilemma

When we initially constructed our strategies we debated the placement of gold. We were confident in the inclusion of the glittery asset, but on the fence where to put it. On the one hand it is a risky, volatile asset with no earnings upon which to value it. On the other hand, it is a go-to asset in times of stress and historically has had a tendency to zig when equities zag. In investing jargon, its “correlation” to equities has been low. That’s a good thing. So, is it a risky “Growth” asset or a “Protection” safety net? We opted for the latter.

We see Protection as being about portfolio resilience, not guaranteed gains every quarter. Its job is to lower the overall probability of large, equity-driven drawdowns and to provide diversification, liquidity, and ballast when uncertainty rises. Protection earns its keep by behaving differently from stocks across cycles—especially when stocks are stressed.

None of this means gold is “stable” or even a predictable ballast. Gold is volatile—and that volatility is a feature we harness over time through opportunistic rebalancing.

The Potential for Negative Protection

In investing, what goes up must eventually come down (at least part way down). Gold is up over 60% this year and has seemed to be on a one-way trip up for much of the past three years. Someday the coveted metal will decline in price and that could easily produce negative returns inside the Protection side of our strategies. But that doesn’t invalidate its role.

Protection is not:

A promise of steady positive returns every month or year
A set of assets that never lose money
A substitute for prudent position sizing, risk budgets, and rebalancing

Rather, Protection is an integral part of a well-diversified portfolio, designed to complement the Growth side of the equation over a full market cycle. Each asset within the Protection heading of our strategies is there with a purpose as we seek to reduce risk for a given level of return.

Why Now?

All this begs the question as to why are writing about gold now? Is it to brag about having gold in our portfolios through this rally? No (okay, maybe a little). Is it to prepare investors for a decline we see coming? No. On the one hand, gold’s rise is a statistical outlier, on the other, the current environment still seems ripe for an uncertainty hedge. Our reason for mentioning gold is simply to take this opportunity to highlight the complicated relationship that exists between assets in a well-diversified portfolio. Protection assets can be risky in the short term and still beneficial to outcomes in the long-term.

2.8%

PCE inflation – the Fed’s preferred measure

Inflation remains rangebound in the latest reading from the US Bureau of Economic Analysis.

Headline of the Week

Variation on a Theme—Inflation, the Shutdown, and the Fed

This week’s release of the Personal Consumption Expenditures (PCE) inflation report served to lift a bit of the fog obscuring the Fed’s view of the economy. The long-delayed September report, published after weeks of government shutdown, showed core PCE rising 0.2% month-over-month and 2.8% year-over-year—slightly cooler than expected and down from August’s 2.9%. Headline PCE also rose 2.8% from a year ago, with monthly gains of 0.27%. These figures confirm a gradual cooling trend, with inflation remaining above the Fed’s 2% target.

Digging deeper, the report highlighted that consumer spending was flat in September, and personal income rose. Goods prices, especially those affected by tariffs, saw a notable uptick, while services and food prices also contributed to overall inflation. The delayed release underscores the challenges policymakers face: with key data arriving late or missing, the Fed must weigh incomplete information as it heads into this week’s meeting.

As we have mentioned previously, markets have responded by recalibrating expectations, with rate cut hopes falling and rising in rapid succession. The current environment underscores a familiar theme: monetary policy can provide relief, but it cannot resolve every uncertainty.

The Week Ahead

There is no chance of having an uneventful week this week. The Federal Reserve has a rate decision, and two big players in the Artificial Intelligence (AI) space report earnings.

On the dot!

With an above 80% market implied probability of a ¼ of a point rate cut this week, the major news may be the projections for what may come in 2026 and beyond.

If the market implied probability is correct, the Federal Reserve will bring the short rates down to the 3.5% – 3.75% range.
With odds that high, it is no surprise all everyone cares about is the path for future cuts.
The Summary of Economic Projections or “dot-plots,” which is a survey of the central bank officials, will chart the course they expect for future rates, inflation, and growth.
One major twist, however, is that Chairman Powell’s term ends in May and a new Chair will pilot the rate curve.
Markets will be curious to see who dissents during the voting.
Also, there is a bit of an eerie feel about this meeting as the policy setters are lacking some data they usually rely on due to the prolonged government shutdown.

Intelligent Conversation

Both Broadcom and Oracle report earnings this week.

While Nvidia may get all the headlines, it is not the only AI darling.
Broadcom is a microchip designer, developer, and manufacturer, while Oracle is known as a software company related to databases, and both had tremendous stock returns thanks to AI.
With markets on edge about AI valuations any weakness will fuel fear; however, solid numbers may put a halt to the debate at least until 2026.
Oracle’s stock nearly doubled this year through the summer but has given most of those gains back since September.
With a CEO transition from Safra Catz to a co-CEO structure and increasing the company’s debt load by $18 Billion to over $100 Billion total, Oracle has a lot going on.
Broadcom’s price to earnings ratios of about 103 times trailing earnings and 43 times forward earnings are the concern; the company needs to show growth to justify those valuations.

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